Performance 2023
First quarter 2023
The results of the first quarter of 2023 show a solid increase, with a return of 20.74% for Class A for the quarter.
The new strategies implemented since October 2022 are bearing fruit and demonstrating their resilience regardless of market dynamics.
As we indicated in our last quarterly report, many challenges are looming for this year 2023. The markets have already had to face a bank panic in the United States due to the downgrading of bank-held bonds.
In fact, the monetary policy pursued by the Fed (Federal Reserve), followed by other central banks, is proving harmful to banking players. The bonds acquired during the 2020s continue to lose value as the Fed continues to raise its rates. The newly issued bonds offer a more attractive yield (around 4 to 5%) than those offered in 2020 (around 1%), which leads to a loss of interest and thus value for the latter.
Following this bank panic in early March, the market seems to anticipate a stoppage, or even a soon-to-come reduction in interest rates by the Fed. However, it is important to remember that the Fed’s primary goal is to bring American inflation back to 2%, whereas it is currently higher than 6%.
Thus, the markets may experience turbulent times, as if inflation does not soften, central banks will have to continue their policies of raising rates. Conversely, if inflation decelerates, the market could get excited by anticipating a rate reduction. “Magical money” continues to wreak havoc…
Our strategies must adapt to this uncertain environment, between panic and unjustified euphoria.
Second quarter 2023
The results for the second quarter of 2023 are on the rise, with a return of 5.65% for Class A over the quarter.
We have updated and reorganized our servers to significantly increase the computing power needed to create new strategy portfolios. We are continually improving our strategies and now update them more frequently to account for market changes.
The global economy is recovering despite numerous difficulties. China has experienced a strong recovery since abandoning its “zero Covid” policy, but is now struggling to sustain its economic growth. The latest economic data shows that the service and industry sectors are growing slower than expected. The supply chain turbulence that has persisted since the beginning of the year is easing as the upheavals in the energy and raw materials markets caused by the Russo-Ukrainian conflict are being resolved.
At the same time, as we regularly report, the massive and coordinated tightening of monetary policy by major central banks is bearing fruit at a time when inflation is slowing (but still rising).
Inflation has lasted much longer than expected. Even if inflation is falling, it is only the momentum of price increases that is weakening. Because prices continue to rise, albeit at a slower pace than in recent months. To effectively combat this price increase, which is higher than central banks’ targets, rate hikes will continue.
There will be at least two more rate hikes in the United States and at least four more rate hikes in Europe. Central banks are independent, but they cannot hide the explosion of public debt in developed economies, notably due to the management of the health crisis. Anyone who talks about interest rate hikes is talking about increasing the debt burden. For example, the United States will pay more than $663 billion in interest on the debt. France will pay a little more than 52 billion euros in interest. This debt burden is taking up an increasingly large share of state budgets.
According to a new report from the International Monetary Fund, supply chain disruptions and geopolitical tensions have highlighted the risks, benefits, and potential costs of geoeconomic fragmentation. Foreign direct investment flows are increasingly concentrated in geopolitically aligned countries, particularly in strategic areas. Several emerging and developing economies are very vulnerable to this shift in investment, as they depend on these capital flows to support their growth. In the long term, this fragmentation due to the emergence of geopolitical blocs (United States, Europe, Canada, Oceania / China, India, Russia, Africa, Latin America) risks causing large production losses, particularly for emerging and developing economies...
Third quarter 2023
The results for the third quarter of 2023 continue to rise, with a net return of 7.59% for Class A over the quarter.
We are continuing the development of statistical tools to validate new strategies. We have established a new commercial brand, QuantK, to further our growth.
Economically, the United States maintains a strict monetary policy, with interest rates expected to remain high for an extended period. This decision is backed by a robust job market, characterized by employment growth and a reduction in unemployment. These developments reflect the resilience and strength of the American economy, even in an uncertain global context.
Inflation appears to be on track to be controlled in the United States, particularly due to the restrictive monetary policy conducted by the Federal Reserve since March 16, 2022. Current data from across the Atlantic indicate that the surge in savings accumulated by Americans has been fully consumed by households. This will mechanically lead to a decrease in price inflation. Concurrently, American households are reverting to credit consumption, credit whose rates are very high today (>24%). This is another positive indicator concerning the control of this price increase.
The situation in Europe presents a stark contrast to that of the United States. The European Central Bank (ECB) has also been conducting a restrictive monetary policy since July 21, 2022. Unlike its American counterpart, the ECB has not paused the increase of its key interest rate. Contrary to American households, European households have retained their savings, at a nearly record level in France (> 19% of disposable income as of August 31, 2023).
Due to these rate increases, several sectors are directly impacted, including the real estate sector, which is highly dependent on the granting of credit to households. In both France and the United States, the credit rate has increased significantly. For instance, compare the borrowing of a French household in September 2021 (around 0.90% to 1.20%) and in September 2023 (around 4% to 4.50%). The total cost of credit has jumped by more than 30%.
In conclusion, the situation is as follows: increase in rates = increase in the cost of credit = decrease in the granting of credit = decrease in consumption = decrease in companies’ order books = contraction of activity.
Fourth quarter 2023
The results for the fourth quarter of 2023 show a continuous new increase, with a net return of 12.08% for Class A over the quarter.
2023 has been a surprising year for global markets, defying many catastrophic and alarmist predictions regarding the imminent recession of the American and global economy. In the United States, in particular, a soft landing seems to be occurring due to the ongoing decline in inflation and a strong labor market. This ‘soft landing’ is the effect the Fed (Federal Reserve) sought to achieve: an increase in rates to combat inflation without excessively damaging the job market (and therefore avoiding a recession). However, on the Eurozone side, the European Central Bank (ECB) has made it clear that there is no intention yet to lower rates (with the consequences we had outlined in our previous report).
By using a quantitative approach that eliminates discretionary elements, we achieved very good performance for the year 2023, unlike many other investment funds.
The year 2024 that has begun is expected to bring its share of news leading to very strong movements in financial markets. Indeed, these markets are hoping for several interest rate cuts in the United States starting from March 20, 2024. However, if the Fed does not initiate this rate cut, or if it is less substantial, the markets could experience a significant correction. Since, for many companies, debt is now much more expensive than it was during the ‘easy money’ period.
Here are the known events to watch out for this year: the results of the American elections, the evolution of conflicts between Russia and Ukraine and in the Middle East, as well as tensions between China and Taiwan.
